JSX launches stock option contract
Rendi A. Witular, Jakarta
The Jakarta Stock Exchange (JSX) launched on Wednesday a stock option contract, a new trading instrument aimed at helping investors avoid massive losses resulting from a major shock in the bourse.
JSX president director Erry Firmansyah said the new instrument provided a better mechanism to protect investors. This would, in turn, increase liquidity in the market and lure new investors, Erry said.
"The instrument can hopefully minimize the possibility of panic stock selling, which would adversely affect the Jakarta Composite Index. We expect the instrument will help widen the (market's) investor base," Erry said.
A contract option gives investors the power to protect the value of their investments because it allows them to hedge the prices of their shares against any downturn.
The contract confers the right, but not the obligation, to buy (call option) or sell (put option) a particular stock for a specified price (strike price) agreed upon by both parties on or before a specified date. Each contract represents 10,000 shares.
If over a specified period of time the market price of the stock rises above the agreed price, the buyers can earn handsome gains since they only have to pay the contract price for the stock. Likewise, if the market price falls below the agreed price, sellers can unload the stock at the contract price, minimizing their losses.
An example Erry said was an investor who bought shares of an automotive company for Rp 7,650 per share. Foreseeing security concerns in the near future, the investor decided to use the instrument by paying a certain premium to hedge the shares at Rp 7,500 per share.
If a week later, a terrorist attack rocked the capital market, and caused the share to plunge to Rp 3,000, an investor with the option could still sell the shares at Rp 7,500 each. Investors who did not subscribe to the hedging facility would have to sell at Rp 3,000.
Five bluechip stocks will offer the contracts: Telekomunikasi Indonesia, Astra International, Bank Central Asia, HM Sampoerna and Indofood Sukses Makmur.
The companies are picked based on several criteria -- they must have been listed for at least 12 months, have at least 2,000 transactions a month, a daily volatility of at least 0.5 percent, a minimum share price of Rp 500 per share and a market capitalization of Rp 500 billion (US$55 million) or more.
Erry said the JSX would review the companies every six months, to ensure continued to qualify for the option, and to consider new companies.
The instrument is to be arranged by 39 securities firms, including Bhakti, BNI, Ciptadana, Danareksa, Kim Eng, Mandiri, and Trimegah securities.